What are we looking for?
Companies facing price-momentum headwinds despite strong sales fundamentals
Canadian technology stocks have recently been overshadowed by gold mining companies, as surging gold prices have redirected investor attention away from the technology sector.
Within tech itself, performance has been increasingly bifurcated: companies not positioned as pure AI plays or tied to bitcoin have generally struggled over the past six months. We believe this recent weakness, difficult to explain by fundamentals alone and more indicative of a shift in market sentiment, may present a timely opportunity to re-examine select technology names.
The screen
We screened the Canadian information technology universe using the following criteria:
- Market capitalization greater than $250-million;
- six-month price momentum below minus-5 per cent;
- Positive next year sales estimates.
For informational purposes, we also added 12-month price momentum, enterprise-value-to-sales (EV/S), one-year sales momentum, three-year annualized sales growth and next-year earnings growth estimates.
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What we found
Stocks with positive sentiment
Topicus.com TOI-V builds specialized software that supports critical day-to-day operations for customers across Europe, and commands a higher valuation multiple, with an EV/S of 6.7 times. This premium reflects a differentiated growth story. The company, a spin-off of Constellation Software (discussed below), continues to deliver solid organic sales growth, with a three-year annualized growth rate of 23 per cent and expected growth of 30.3 per cent over the next year. In the current geopolitical environment, marked by a renewed focus on European digital sovereignty and software localization, this exposure has become increasingly attractive to investors seeking long-duration growth themes beyond North America.
Lightspeed Commerce LSPD-T, a Montreal-based provider of cloud-based point-of-sale and commerce software for retailers and hospitality businesses, stands out on valuation. With an enterprise value-to-sales ratio at 0.9, the stock trades at a significant discount relative to both its peers and its own growth profile. Sales have grown at a 24.8-per-cent annual pace over the past three years, while earnings momentum is expected to accelerate sharply, with adjusted earnings growth at 52.3 per cent.
Constellation Software CSU-T, a serial acquirer of niche, mission-critical software businesses, is a cornerstone of the Canadian technology sector. Trading at a mid-range EV/S of 3.7, Constellation offers a balance of scale and consistency. With three-year annualized sales growth running at 24.4 per cent, supported by disciplined capital allocation and a long track record of value-accretive acquisitions, the stock may provide greater stability relative to smaller, more volatile peers.
Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
For more details about these stocks, subscribe to the Inovestor for Advisors platform for free.
Anthony Ménard, CFA, is vice-president of data management at Inovestor.